The success of pancreatic islet-transplantation therapy to treat diabetes is limited by a lack of sufficient human donor material. Guiding human embryonic stem cells (hESC) to differentiate into functional insulin-secreting β-cells in vitro offers an attractive alternative. Since the transcription factor PAX4 initiates terminal β-cell differentiation during murine pancreatic development, we investigated whether constitutive expression of PAX4 in hESCs could promote progression towards a functional β-cell phenotype in vitro. H7 hESC stably-transfected with PAX4 (H7.Px4) and untransfected H7 controls (H7) were allowed to spontaneously differentiate over a 3-week period following embryoid body (EB) formation. Expression of key genes important during hESC maintenance (OCT4), pancreatic development (PDX1, ISL1, NEUROD1, KRT19) and for mature β-cell function (SLC2A1, GCK, ABCC8, KCNJ11 and INS) were assessed using standard RT-PCR and SYBR-green quantitative PCR (Q-PCR) at days 0, 7, 14 and 21 following initiation of differentiation. After 21 days differentiation, EBs were re-plated, enzymatically dissociated and subjected to fluorescence-activated cell-sorting using Newport Green to isolate a Zn⁺ positive population of cells. The Zn⁺ positive cells were subsequently assayed for c-peptide secretion using an ultrasensitive c-peptide ELISA kit. OCT4, ISL1, NEUROD1, KRT19, SLC2A1, GCK, ABCC8 and KCNJ11 transcripts were expressed at all time points in both control and H7.Px4 EBs (n=3 for each). Interestingly, Q-PCR revealed substantially higher levels of expression of PDX1 and INS mRNA in H7.Px4 EBs than H7 control EBs (n=3) at the mid- to late- stages of differentiation. Following FACS, the Zn⁺ positive cells were found to be positive for INS expression by RT-PCR and Q-PCR , they also contained c-peptide protein (77±7 pg/10⁴ cells; n=3) and secreted c-peptide in response to stimulation with the insulin-secretagogue, tolbutamide (100 µM; basal 23 ± 5 pg/10⁴ cells/15 min vs tolbutamide 68±4 pg/10⁴ cells/15 min; n=3; Student’s t-test p<0.001). These studies describe for the first time the enhancement of β-cell differentiation in hESC by constitutive expression of PAX4, and also a novel method to separate differentiating insulin-secreting cells from undifferentiated precursors.